Lockheed Martin 2004 Annual Report Download - page 34

Net sales for I&TS increased by 2% in 2003 as compared
to 2002. The sales increase for the year was mainly the result
of volume increases of $110 million in Information
Technology, which more than offset lower sales volume total-
ing $40 million on Defense Services and NASA programs.
Information Technology’s results included the net impact of the
previously mentioned transactions with Affiliated Computer
Services in 2003.
Operating profit for the segment increased by 26% in 2004 as
compared to 2003. The operating profit increase was mainly due
to Information Technology volume and program performance.
Operating profit for the segment increased by 28% in 2003
as compared to 2002. The operating profit increase was mainly
due to the higher volume in Information Technology and
improved performance across all lines of business.
The I&TS segment includes a business unit that provides
services to the government of Argentina. At December 31, 2004,
we had net investments in and advances to this unit totaling about
$20 million. While we expect that these amounts will be recov-
ered, there is always the potential that further devaluation of the
Argentine peso, deterioration in the Argentine economy or other
factors could adversely affect our ability to recover those amounts.
Net Unallocated Corporate (Expense) Income
The following table shows the components of net unallocated
Corporate (expense) income. For a discussion of the FAS/CAS
pension adjustment and other types of items included in net
unallocated Corporate (expense) income, see Note 15 to the
financial statements. For information about items not consid-
ered in segment operating performance, see the table under the
previous discussion of results of operations. The decrease in
“Other, net” was primarily due to lower earnings on our equity
investments in 2004.
(In millions) 2004 2003 2002
FAS/CAS pension adjustment $(595) $(300) $ 243
Items not considered in segment
operating performance (215) (153) (1,112)
Other, net (77) 47
$(887) $(449) $ (862)
The difference between pension costs calculated and
funded in accordance with CAS and pension expense deter-
mined in accordance with FAS 87 is not included in segment
operating results and therefore is a reconciling item between
operating profit from the business segments and consolidated
operating profit (FAS/CAS pension adjustment). The CAS
funding amount is allocated among the business segments and
is included as an expense item in the segments’ cost of goods
sold. A majority of the cost is also passed along to our cus-
tomers through contract pricing, and is consequently included
in the segments’ sales.
The following table shows the CAS funding that is included
as expense in the segments’ operating results, the related
FAS (expense) income, and the resulting FAS/CAS pension
adjustment:
(In millions) 2004 2003 2002
FAS 87 (expense) income $(884) $(484) $156
Less: CAS expense and funding (289) (184) (87)
FAS/CAS pension adjustment —
(expense) income $(595) $(300) $243
As disclosed in Note 12 to the financial statements, FAS 87
expense increased primarily due to higher recognized net actu-
arial losses and higher service cost in 2004, and due to a lower
expected return on plan assets in addition to these other two
factors in 2003.
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2004
32